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ASX delivers strong growth to investors

Nicki Bourlioufas  |  18 Aug 2016Text size  Decrease  Increase  |  

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The stock-market operator sees growth supported by higher share-market activity, after the surprise Brexit vote sent many investors into the market looking for a bargain.

 

Stock market operator ASX Limited (ASX: ASX) on Thursday said its net profit after tax lifted 7.1 per cent to $426.2 million for fiscal 2016, with the surprise Brexit vote helping to boost trading volumes.

Buoyed by its monopoly position, the ASX reported a jump in operating revenue to $746.3 million in 2015-16, up 6.5 per cent from the previous year. The group's underlying profit lifted 5.7 per cent to $426.2 million.

Despite the strong result, ASX shares fell after the result, to as low as $48.81 from their previous closing level of $50.19. The shares have, however, gained strongly in recent times.

"While the share price cooled, we do not think investors will have too much to be disappointed about in the result, with some maybe looking to trim holdings with the stock up around 20 per cent in the last six months," said Nathan Zaia, a Morningstar equities analyst.

"Our earnings forecasts are largely unchanged following the result. While we see downside risk to new listings and capital issuance in fiscal 2017, we expect support from fees."

Rick Holliday-Smith, ASX chairman, said the company experienced growth in all key business areas, supported by higher share market activity, particularly after the surprise Brexit vote which sent many investors into the market looking for a bargain.

The new ASX chief executive Dominic Stevens said the ASX's focus on customer service and continued investment in technology would help spur on growth.

"This gives me confidence as a CEO of only two weeks that there is a strong business in place and exciting opportunities ahead for ASX," Stevens said.

The ASX's technology investment is targeted at delivering a more efficient exchange service plan.

The investment included successfully introducing T+2 settlement, significant progress on the delivery of a new futures trading platform and the assessment of distributed ledger technology or "blockchain" as a potential post-trade solution for the equity market.

"These initiatives aim to improve market efficiency and reduce risk and complexity for investors, intermediaries and other market stakeholders. They help keep Australia at the forefront globally of innovative market developments," Holliday-Smith said.

Morningstar's Zaia said the rise in investment spending does not put the dividend payout ratio at risk.

"ASX generates strong cash flows and has a handy cash balance of almost $1 billion," he said.

The ASX declared a fully franked dividend of 99 cents, up 4.1 per cent. Its total payout for the year advanced 5.7 per cent to $1.98, giving the stock a yield of around 3.8 per cent.

More from Morningstar

• Origin Energy scraps dividend after earnings fall on oil price slump

• Brambles' profit meets guidance, CEO retires

 

Nicki Bourlioufas is a Morningstar contributor.

© 2016 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written content of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.